2018 Q3 Results Presentation & Transcript

2018 Q3 results presentation

Transcript

View the 2018 Q3 results presentation and read the transcript slide by slide

Slide 1 – Operator

Good morning, and good afternoon, and welcome to the Novartis Q3 2018 Results Release Conference Call and Live Audio Webcast. The conference is being recorded. A recording of the conference call, including the Q&A session, will be available on our website shortly after the call ends. With that, I would like to hand over to Mr. Samir Shah, Global Head of Investor Relations. Please go ahead, sir.

Slide 2 – Samir Shah, Global Head Investor Relations

Thank you very much, and good morning, and good afternoon, everybody. Before we start, I just wanted to read to you the safe harbor statement.

The information presented today contains forward-looking statements and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Please refer to the company's Form 20-F on file with the US Securities and Exchange Commission for a description of some of these factors. In addition, just wanted to point out that the information presented in respect of the proposed Endocyte transaction may be deemed to be solicitation material. In connection with the proposed Endocyte transaction, Novartis and Endocyte intend to file relevant materials with the US SEC. We urge you to read these materials, including a proxy statement of Endocyte and all other relevant documents filed with the SEC when such documents become available and which will be available for free. The proposed Endocyte transaction has not been completed, and there can be no guarantee that the proposed Endocyte transaction will be completed or that it will be completed as currently proposed or at any particular time. And with that, I'll now hand across to Vas.

Slide 3 – Vasant Narasimhan, CEO of Novartis

Thank you, Samir, and thanks, everyone, for joining today's conference call. We're really pleased with our performance in quarter 3, where we continued our journey to be a leading focused medicines company powered by breakthrough innovation and data and digital technologies.

Slide 4

You can see that our group performance was strong, with sales growing 6% in constant currency and core operating income up 9% in constant currency. Harry will go through the numbers in a bit more detail. We're also quite pleased with our innovation milestones in the quarter. And I'll go through these in the upfront section. But with the AVXS-101 filing in US, Europe and Japan, BAF312 filed in US and Europe, the approval of Kymriah® in multiple geographies and the proposed acquisition of Endocyte, I think we're also demonstrating we have the innovation power and the innovation momentum to continue to drive growth well into the future.

Slide 5

When you look at the underlying drivers for that strong performance, you can see that Cosentyx® and Entresto® continue to perform well. I'll go into each of those in a bit more detail. But I also wanted to point out our Oncology growth drivers are tracking extremely well: Promacta®, Tafinlar® and Mekinist® as well as Jakavi®. And I'll say a bit more about Lutathera®. It's become a bright, a real bright point for us as we now see this as a potential blockbuster medicine. And I'll show you a bit more data about where we see Lutathera® trending right now.

Slide 6

Then when you look at Cosentyx®, I think as we've hopefully now shown, it's really established as the leading differentiated IL-17A inhibitor and had an outstanding performance in the quarter. You can see the 37% growth, really strong momentum by Paul and his team across all indications and geographies. Importantly, we surpassed Humira® in TRx in psoriatic arthritis in the United States. And then we have recent 5-year data, which similar to what we've shown in psoriasis, showed that in PsA and in AS, we showed sustained benefit complementing our long-term data, as I said, in psoriasis. I think that really builds out the profile of Cosentyx® as the leading IL-17A inhibitor, on the one hand, in psoriasis, and then in rheumatology, really being unique in the mechanistic approach it has to treating the underlying joint disease that are really prominent in these two conditions.

Slide 7

Going a little bit deeper on psoriasis: You can see that we continue to gain market share in psoriasis in a very competitive market. I think Paul could say more about this. And there's a few reasons for this. One, we continue to believe that within the physician mindset and the payer mindset, there are two classes here, they're thinking about in terms of the new drugs, IL-17A and IL-12/23. We are the leading IL-17A with some really important unique datasets, including that we can treat multiple manifestations of psoriatic disease, including scalp, nail, palmoplantar and joint involvement. And two thirds of patients have those additional sources of the disease. And then on top of that, when you look at our real-world evidence datasets we've been putting out into the community, they consistently confirm the safety and efficacy benefits of Cosentyx®. So we're quite pleased and really looking for Cosentyx® to continue its strong trajectory into the coming years.

Slide 8

Entresto® as well had a very strong performance in the quarter, doubling versus Q3 in 2017. You can see both US and ex-US sales were nicely up. I think importantly here, we're starting to roll out datasets from trials that we began in 2015 to really build out the profile of Entresto®. Both TRANSITION and PIONEER taken together will hopefully enable us to really show that Entresto® can be used in the hospital setting. The TRANSITION study has already read out and the PIONEER study will be something we'll be presenting as a late-breaker at AHA in November. That will enable us to ensure that patients are getting Entresto® at the right time in the hospitals. In addition, the PARAGON study continues as planned following the interim analysis that we talked about earlier this year with the results expected in mid-2019. I would also note the PARADISE study, which is in pre-heart failure, post-MI patients, is also enrolling according to plan. So overall, the Entresto® picture looking strong, and we continue to see solid momentum around the world with this medicine.

Slide 9

I mentioned Lutathera®, and I wanted to show the kind of really explosive performance we're seeing now in Lutathera®. It's off to a strong start in the US. You can see here number of doses per quarter. And this trend is really, I think, very encouraging. And we're now we're starting to roll out the medicine in Europe. In the US, we have 85 centers that are actively prescribing. We have 70% coverage of the relevant lives. And in the UK now, we have 18 centers actively prescribing. And I think seeing the strength of the performance in Lutathera®, feeling now that it's a potential blockbuster medicine, seeing this outperform our deal case is part of the rationale when we come to the Endocyte deal for the confidence we had in taking the step to acquire Endocyte. And I'll talk more about that in a few slides.

Slide 10

Now moving to Sandoz. I think, as you know, Sandoz continues to perform well in a difficult environment both in the US but also around the world. When you look at Q3 2018 performance, the US impact continued of the industry-wide pricing pressure. But we were able to grow sales ex-US at 2%. And importantly, our biosimilars portfolio is growing at 21%. And when you think about how we're going to drive Sandoz moving forward, a lot of it is about executing a strategy of transformation and shifting the focus to complex generics and biosimilars. We're well on our way to do that in the United States. We announced our planned sale of the core Gx business to Aurobindo. And then we're also expanding rapidly in biosimilars in Europe. And Richard can speak more about that. But both Rixathon® and Erelzi® are performing well. We have the approval for our adalimumab biosimilar and our infliximab biosimilar. And I would note that we are now in the market with our adalimumab biosimilars in four countries. And we have a positive CHMP opinion for pegfilgrastim, which should enable a launch, we hope, in Q4, assuming approval. So overall, I think Sandoz is on the right track. Challenging environment, but I think we're taking the steps necessary to put the division in a place where it can succeed.

Slide 11

Alcon continues its strong sales growth. And I think that's really the key point of the Alcon story. We need to keep generating that strong sales growth across segments, and we did that in the quarter. You can see 7% sales growth in Surgical, 3% sales growth in Vision Care. Core operating income grew 1%. And we had always known that the margin story for Alcon this year was going to be a little bit choppy coming out of the trough 2017 margin. David Endicott is here. And he can provide more perspective. But when you look at the year-to-date performance in Alcon, we have core operating income growing at 14%. The core ROS at 18.6%. So the business is on the right direction and is continuing its trajectory as we've stated. And we remain confident, as Harry can discuss further, in the overall trajectory of the margins.

Slide 12

Just to say a word on data in the quarter: We had a number of key data readouts and regulatory milestones. And I don't want to go through all of these, but a few I wanted to highlight on this slide. I will talk about AVXS-101 and Endocyte specifically. But I did want to note that BAF312 was filed in SPMS in both US and Europe. We will be presenting the BYL719 study results at the presidents' presentation in ESMO over the weekend. And we'll be holding an investor call around that, so everybody can understand better that data. And importantly, driving our in-line brands really across the various brands, whether it's Gilenya®, Kisqali®, Aimovig®, Taf/Mek, we continue to generate data to support these important growth drivers at the company.

Now before moving off this slide, I wanted to give an update on ACZ885. Yesterday, we received a complete response letter from the FDA regarding the filing in cardiovascular disease. As we had said last year, we were focused all along on trying to get the hsCRP responder group as the primary driver in the label so that we could make sure the relevant patient population would get treated and there would be appropriate access to the medicine. We presented our case to the FDA. The FDA has asked additional questions and has requested additional data with respect to the responder population. And we're evaluating now what would be the appropriate next steps. I would want to highlight that we continue on track with our ACZ885 studies in lung cancer, where we're enrolling studies in adjuvant lung, first-line metastatic lung and second-line metastatic lung. And we're on track for readouts of those studies between 2020 and 2022.

Slide 13

So diving a bit more on AveXis. And there's been a lot of discussion, I think, given the competitive dynamics in SMA around the AVXS-101 program. So I wanted to again level set everyone on the extraordinary results that you see with this medicine in SMA Type 1. I think whether you look at the videos that are posted by the NIH Director or if you look at other testimonials for patients, this is a simply extraordinary medicine, where you have patients who would otherwise be expected to die, many of them out now beyond four years of age developing normally.

So I think a few key points to highlight here. First, when you look at the baseline study characteristics, this was a severe population. And I think whenever you're looking at results in SMA, it's important to look at the baseline study population because there's a lot of variability in the baseline characteristics of these patients. When you look at the efficacy, we had 100% of patients alive and without need for permanent ventilatory support. And then if you could imagine a parent wanting to treat their infant, they're certainly not going to want to take the risk that there's some percentage of patients that die with respect to a given therapy. So we believe this is quite material and quite important when you look at treating infants for a devastating disease. We had 9 out of 10 achieve a CHOP-INTEND score of greater than 40 at 8 months, 11 out of 12 greater than 50 during the 24-month study and 11 out of 12 achieving at sitting unassisted during the 24-month study. And when you look actually at the CHOP-INTEND scores, we're getting patients in the relevant period of time where you can measure CHOP-INTEND into the high 50s or low 60s for their CHOP-INTEND scores. CHOP-INTEND is less relevant after the first year of life. But I think that shows you not only the efficacy benefit from a mortality standpoint but also the functional benefit you get with these patients.

Strong durability, we continue to achieve major milestones with this therapy out beyond four years for the patients. We've been able to track two years in the reported data. I think again I'd want to highlight that those patients who we've disclosed in previous congresses that are tracked for even longer than two years, only a portion of them have received other therapies. There's also a portion that have received no other therapies and continue to do extremely well.

When you think about that mechanistically, we know that motor neurons don't divide. You have your maximal motor neurons as an infant. When you receive an IV gene therapy, you would expect most of the motor neurons, we hope, and perhaps all of the motor neurons to have the appropriate gene inserted. So the mechanistic rationale for waning of effect is not there in our view. Now there could be other things that happen as we do longer-term follow-up. But I think it's important that we stick to the science and stick to the data when you're looking at these kinds of medicine. Lastly, I would point out on the right-hand side, when you look at the speed of response, the speed of response is quite striking with respect to AVXS-101 and other relevant therapies. I think that will be important for SMA Type 2, 3. And I'll talk a little bit more about where we are in those studies in a moment.

Slide 14

When you look at SMA Type 1, we have successfully filed now in the US, Europe, in Japan, all ahead of schedule for SMA Type 1 with AVXS-101. We have a potential approval, we believe, in the US in the first half of 2019. We do have a Breakthrough Therapy Designation there. In the EU, we believe the approval is mid-2019. We do have PRIME designation in the EU. And we initiated submission in Japan in mid-September. We anticipate the completion by year-end of the full file. And again, we expect approval in the first half, given that we have Sakigake designation, one of the first medicines to receive this designation in Japan. So we're quite pleased with the progress in SMA Type 1, a truly transformational foundational therapy for these patients.

Slide 15

Now to give you a little bit of an update on where we are on the trials, because I know there have been some questions and some misinformation regarding this. When you look at where we are, the START study, which is the long-term follow-up for the SMA Type 1 patients, we have 12 patients enrolled. When you look at the STR1VE study, which is the single IV dose confirmation study, patient enrollment is complete. When you look at the STR1VE EU study, we have 6 patients enrolled and patients enrolling very well. We expect to complete enrollment shortly. When you look at the SMA Type 2, Type 2, 3 study with intrathecal dosing, patient enrollment is complete. And when you look at the presymptomatic SMA studies, which are being conducted under the rubric of newborn screening, we have 6 patients enrolled and we're seeing very heavy demand for that study as well. So altogether, clinical program is on track to continue to expand beyond SMA 1 into 2, 3 and then eventually into newborn screening.

Slide 16

I want to say a word now about a few slides about Endocyte, the acquisition we announced earlier today, which really builds on the earlier acquisition we've made with Advanced Accelerator Applications. As I've tried to articulate to all of you, we're on a journey to focus our company as a medicines company. And within being a medicines company, along with our appropriate diversification in therapeutic areas, to build leadership in three platforms, which we believe are advanced therapy platforms that will drive differential growth: cell therapy, we have Kymriah® and then building beyond that; gene therapy, we acquired AveXis and are building on our portfolio there; and finally, in radiopharmaceuticals or radioligand therapy in this case.

Now when you look at the specific assets that we have here in Endocyte, which we would plan to bring into our Advanced Accelerator operations, prostate cancer is expected to be an USD 11 billion market globally in 2024. This medicine is expected to provide an additional treatment option for prostate cancer. And I'll talk more about that because I think there is some misunderstanding in some of the notes I've seen over the course of today as to what exactly we are treating here versus other therapies that are on the market. This is a first-to-market potential product in a PSMA radioligand therapy. The enrollment of Phase III has been initiated and is on track. FDA feedback, which we reviewed, is very clear that radiographic PFS can be used as the endpoint, which should enable a relatively rapid, we believe, timeline for the Phase III study. It's a significantly derisked profile when you look at the Lancet paper that's been published on the strong Phase II data. There's extensive preclinical data as well as various other investigator-initiated study data that we've reviewed, which gives us confidence in the overall profile of the medicine.

Now importantly, this expands our nuclear medicines platform. Following the launch of Lutathera®, it gives us a second radioligand therapy. It allows us to eventually move this PSMA-617 therapy into earlier lines of therapy. And then we have opportunities to expand the platform in the future. One thing not noted in this slide, this also would enable us to have new manufacturing capabilities that we would then apply to our radioligand portfolio in the future.

Slide 17

What exactly do we talk about here? And this is, I think, a very important point, and I hope investors will take a moment. This is a therapy, as is the case with Lutathera®, where we link a radioactive particle to a ligand. And this ligand has high specificity for a given tumor cell type. And in that way, we can target the radiation directly to the relevant cancer. So it's a very targeted approach. We do that with neuroendocrine tumors. And here, we do it with PSMA in prostate cancer. This high-affinity targeting allows us to really manage – I think improve – the efficacy and also manage the safety profile.

Now other therapies available in the market are simply infusions of radium that are actually just used for bone metastases, not for metastatic prostate cancer. So as you look at your benchmarks for what are the appropriate sales potential, please ensure you're using relevant benchmarks when you do this. Now once the particles are bound together, they get internalized, and you would expect that the cancers then ultimately respond. And that's a response that we've seen.

Slide 18

Now when you look at the data, you can see here in the Phase II study, we had a strong PSA response, which we think is a relative measure. You can see on the left-hand side, we had a solid trend in these patients, who had failed multiple lines of therapy in PFS as well as in overall survival. And we've seen similar data from other smaller study sets and in IITs as well.

Slide 19

You can see our Phase III VISION trial, which is currently enrolling, takes the 2:1 randomization, takes patients with metastatic prostate cancer, they have to have a positive PSMA scan and then have had a prior taxane or a prior novel androgen access drug. And after that, then they're randomized into either the PSMA drug or to best supportive care and then we'll see. We have 750 patients, enrollment initiated. And as I said, FDA has agreed to the endpoints on both primary and secondary.

Slide 20

You can see some of the deal characteristics. We're certainly happy to answer any questions, but I think it's relatively straightforward. We fund it through cash. We don't expect dilution with respect to this deal. We expect it to start contributing to group sales in 2021. Our overall financial expectations is the medicine has a blockbuster potential. And if we are able to get into earlier lines of therapy, we can have even higher sales potential with this medicine, which would generate an attractive IRR to the company. And of course, all of this is subject to the appropriate approvals from Endocyte shareholders and the relevant regulatory agencies.

Slide 21

The expected next steps for the deal: Of course, we'll continue to generate the data and provide additional information as it becomes available. We have filed a proxy statement – we will file the proxy statement with the SEC. And we are hopeful to have closing in first half 2019, subject to the various considerations.

Slide 22

Last slide before I'll turn it over to Harry. We are going to hold an R&D and investor update on November 5th. We'll have a deep dive on AVXS-101. We'll have some of the key scientists there, so investors can speak to the team directly on where we are in that program. And then we'll have a number of other detailed updates on a range of programs. A few that I would want to call out that are beyond what we traditionally talk about, QAW039, our CRTh2 antagonist for severe asthma, where we may now start to move toward study readout. We really want to make sure everyone understands that – what we believe – substantial potential for this medicine. We will go through our multiple sclerosis portfolio, BAF, ofatumumab as well as the status with respect to Gilenya®. We'll provide you all the RTH258 2-year data and continue to demonstrate the profile of that medicine as well as provide an update on the Oncology late-stage portfolio, building off of the BYL presentation we will make this weekend and provide an update to you early next week. So overall, I think a really strong performance. And I'll hand it over to Harry to give you some more perspective from a financial standpoint.

So on Slide 24, you see the summary of our quarter 3 and year-to-date performance. We continued to deliver good growth with quarter 3 sales up plus 6% and year-to-date sales up plus 5%. This performance drove accretive bottom line growth as well. So core operating income was up 9% in the quarter and 7% year-to-date. As you can see, free cash flow grew plus 10% the first 9 months to USD 8.8 billion, driven by this very strong operating performance. Year-to-date operating income grew 3%, driven by the quarter 3 operating income declining 13% as we recognized charges for ongoing restructuring programs and the impairment of Alcon's CyPass.

Slide 25

We see here the quarter 3 and year-to-date core margins of the group at each division. Strong sales uptake in Innovative Medicines drove margin expansion for the division and the group. Innovative Medicines margin was up plus 2.1 percentage points in the quarter, bringing year-to-date margin up 1.1% to 32.4% of sales. Group margins improved by 0.8 percentage points in the quarter and plus 0.5 percentage points year-to-date, driving the margin to 27% of sales.

Slide 26

I wanted to have a quick view on the Alcon sales and margin progression over the past few years based on September year-to-date numbers for each of the years. As you can see, investments in 2016 and 2017 were necessary to stabilize and then grow again the top line. In 2018, the strong sales growth is driving margin expansion. Year-to-date core margin improved by over 1 point to 18.6% of sales as compared to a trough margin year in 2017.

We have always said we expect some quarterly fluctuations in the margin for Alcon. And David Endicott clearly can give you some further flavor on that. In quarter 1 2018, the spending was lower. And in quarter 3 2018 Alcon increased investments behind some key brands. In quarter 4, typically margins are lower each year compared to the full year margin due to increases in equipment sales as hospitals finalize their purchases before year-end.

Hence, it's always important to look at year-to-date and full year numbers. Clearly, we expect 2018 full-year core margin to be up versus 2017 full year and then full-year margin growth in each of the following years. Importantly, mid- to long-term, Alcon remains committed and on track to achieve margins in line with the medical devices industry, i.e. in the range of low to mid-20s. The margin expansion is expected to be driven by continued strong top-line growth, improved gross margin and cost leverage.

Slide 27

Just back to the guidance: We are increasing our group sales guidance to grow mid-single digits, so at the higher end of what we said before, given our year-to-date 5% sales growth. And we expect that to continue at a nice level in quarter 4. This is driven by strong performance of the Innovative Medicines division, where we also can revise up the full year guidance to grow in the mid- to high single-digit range. This guidance includes, also when you look at the core operating income, we reconfirm our core operating income guidance as issued in January, expect it to grow in the range of mid- to high single-digit. And as I mentioned earlier, also in the year, the guidance includes AveXis R&D and prelaunch investments. And as you see, this guidance is also very consistent with our year-to-date performance, where we grew sales plus 5% and core operating income plus 7%.

Slide 28

Just a quick update on the expected currency impact, assuming mid-October rates would hold for the future. On full year of 2018, the currency impact is expected to be flat on both sales and core operating income. As you can see here, the strengthening US dollar has a negative impact on half 2, offsetting the positive impacts we have seen in half 1. Should currencies stay at the current level throughout 2019, we see a negative effect of minus 2% on sales and minus 3% to minus 4% on core operating income for full year 2019 results. Please, as always, pay close attention to this as you build your models. And as most of you know, we are always updating the expected currency impact each month on our website. And with that, I turn back to Vas.

Slide 29 – Vasant Narasimhan, CEO of Novartis

Thank you, Harry.

Slide 30

I think, reiterating what we've already told you, we delivered strong accretive growth in the quarter and are pleased with our momentum there. And we continue on track to our stated goals with respect to margin expansion and top-line growth. The innovation momentum is continuing in the company. We progressed our advanced therapy platform strategy with the agreement to acquire Endocyte. And we're on track to deliver our full year guidance. So with that, we can open up the line for questions.

Q&A Session

Graham Glyn Charles Parry - BofA Merrill Lynch, Research Division

Q. So firstly, on Cosentyx®, can you just give us an update on your contracting into 2019? And have you seen less rebating needed to attain first-line positions? Or is Ilumya™ and the prospect of risankizumab launch next year skewing that contracting at all? Secondly, on your SMA franchise, could you just give a best guess on timing of filing in Type 2, 3? Can you file 2020 on the back of the strong data? And also at WMS, there was some data on branaplam, which seemed to show worse CHOP-INTEND scores than we see with the Roche oral agent or AVXS-101, but there was dose reduction and discontinuation of the trial temporarily. So perhaps, if you could just help us understand how you think that data compares to the other agents in development and in the market and where it fits in your overall strategy going forward. Third is biosimilar Rituxan®. Could you explain when you expect to refile and why you haven't refiled that yet? And last one, just an update on Afinitor®. Looking at court dockets, it looks like you settled most of the litigations and IPRs there. Could we see some protection there beyond your prior March 2020 guidance?

Vasant Narasimhan - CEO of Novartis

A. Thank you, Graham. So first, on Cosentyx® contracting, Paul?

Paul Hudson – CEO, Novartis Pharmaceuticals

A. So Graham, thank you for the question. Yes, I mean, it's too early to announce where we stand for '19. But the conversation has progressed as we would have hoped through the summer. There is definitely a more interesting dynamic for us, a positive dynamic because we're significantly larger asset than we were this time last year when we went into this, so we have more leverage. We're also very pleased with how we got pickup in volume in first line. So we'll be open-minded and [hopeful] as you'd expect as we go into '19. But I'm very comfortable with the outlook for us as we transition into next year.

Vasant Narasimhan - CEO of Novartis

A. So with respect to SMA, I'll just quickly confirm on AVXS- 101 Type 2, 3 our current stated filing objective is in 2020. Now with respect to branaplam LMI, I'll turn it over to John.

John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. Yes, I didn't -- can you repeat the question regarding LMI?

Vasant Narasimhan - CEO of Novartis

A. John, it was regarding our overall plans with respect to LMI in our portfolio.

John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. Yes, we continue to advance LMI according to our original plans. We look at exploring opportunities in terms of combinations with our AVXS-101. So our current plans are to continue to explore our opportunities moving forward in this space.

Vasant Narasimhan - CEO of Novartis

A. And I think, Graham, on LMI, I mean, we had some early studies, right, that I think were disclosed at WMS. But we feel good about the overall profile. I would say that our hope is that gene therapy will be foundational. And I think the question of whether or not supplementation will be required at all is something that clinical trials will ultimately have to determine. But orals will certainly have a role for patients who have antibodies at baseline or patients who have maternal antibodies prior to being able to get a foundational gene therapy is how we sort of overall see this space evolving. Now with respect to biosimilar Rituxan®, Richard?

Richard Francis – CEO, Sandoz

A. Thanks for the question. So obviously, we've been working closely with the FDA and have discussions on a path forward for our rituximab. We are currently awaiting their written feedback just to clarify the next steps. And once we have that, we'll come back to you and let you know.

Vasant Narasimhan - CEO of Novartis

A. And then finally, with respect to Afinitor®, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Sure. It's Liz Barrett with Oncology. Afinitor®, we do expect generic competition in Europe in the beginning of 2019 and then limited generic competition the end of 2019 in the US. And beyond that, we really just can't give any other information.

Andrew Simon Baum - Citigroup Inc, Research Division

Q. A couple of questions. Given the appointment of a new Chief Legal Counsel and given your focus on upgrading the standards which Novartis holds its compliance, I would imagine you'd be seeking to close out the numerous ongoing investigations, particularly in the US with the Diovan® (inaudible) general. Could you give us some indications of what kind of timing we might expect in order to reaching closure here? And if you've got anything you feel you can add at all on financial settlements, I'd be interested, but I understand that may be challenging. Second, in relation to Tasigna®, which was obviously lighter than, I think, The Street was looking for in the quarter, could you break down exactly why that was? Was it discontinuation as a function of the data? Was it increased rebating or prioritization or other factors? That'd be helpful.

Vasant Narasimhan - CEO of Novartis

A. Thank you, Andrew. So with respect to the first question, we're pleased that we have Klaus Moosmayer joining us Chief Ethics and Risk Officer from Siemens. He has deep expertise in managing global organizations and really elevating their capabilities on ethics, risk and compliance. And of course, we are thrilled that Shannon Klinger, our Chief Legal Counsel, as well now being elevated up on the team. So I think, overall, we have the right team in place. Now in terms of the various litigations around the world, I can't provide, I think, specific details. What I would say is we are looking to try to accelerate closing these matters so that we can move forward, given the new culture at the company, which is one that, on the one hand, wants to be much more empowered and curious for our people and on the other hand, wants to have an uncompromising approach with respect to integrity, ethics. And so I think once we have better clarity on any of those matters, we'll give you information. But certainly, my aspiration is to try to close off these matters, so the company can move ahead in its new strategy and new direction. Now with respect to Tasigna®, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Yes. Actually, there were several factors that contributed to the Tasigna® decline. I think it's really important, first, to note that we actually had growth in markets except for the US and the emerging growth markets. The emerging growth markets is really a phasing, so the majority of the decline is in the US. There were three factors that contributed to that. One is actually there was a reduction in inventory. So that was about half of the decline in the US. And then to your point, it was around the TFR. I think the great news for patients that we delivered at ASCO and presented was around patients' ability to come off drug. And I think that's something that both physicians and patients are excited about. But as patients come off, we didn't replenish the funnel at the same rate. And so we've seen some of that. And then the third factor is really around competitive pressure in the market and what we've done. And I think the most important thing is, in reaction to that, we're really refining our messages to focus on efficacy, both in first line and in second line because you've also seen an increase in imatinib generic. So we want to focus our message in those failures beyond imatinib. So I do think that we feel like the decline will stabilize and we will return to growth in 2019. So it's not something we expect to continue.

Matthew Weston - Crédit Suisse AG, Research Division

Q. Three questions, if I can, please. The first on AveXis launch dynamics, Vas. Clearly, you've set out the timeline that points to the middle of next year. Can you give us some comfort around the manufacturing supply that should be available at launch if you were to see three global approvals? And also given expectations for launch timing as drugs sometimes go awry, can you give us your view as to how you see the rollout? Is there a strong bolus that you expect will very rapidly get rolled out? Obviously, something where reimbursement dynamics and really the first gene therapy out there means the uptake will be slower. Secondly, on Votrient®, another drug in Oncology where we saw a slowdown in 3Q. Liz, I would be interested in whether there was anything specific behind that dynamic. And then finally, Vas, on Endocyte, the one thing that slightly surprised us, the deal is structured as a merger rather than as a tender, which often suggests there are competition concerns. And so it's whether or not you're prepared to comment as to whether or not you expect competition commission scrutiny and whether that's around their CAR-T platform or whether that's around the lutetium platform and how you see that playing out.

Vasant Narasimhan - CEO of Novartis

A. Great. Thanks, Matthew. So first, on AVXS-101 supply and then the global rollout, I'll hand it to Paul. Paul?

Paul Hudson - CEO, Novartis Pharmaceuticals

A. Yes, so it has been a great pleasure to get the AveXis team in more detail. And one of the real impressive things beyond the science has been their commitment to world-class manufacturing and on a significant scale. And as we got deeper into being credible partners of them, it's quite clear that we can match with the IV in SMA 1 whatever the demand may be. So we're comfortable there. In terms of rollout, really we've gone for the breakthroughs in all three jurisdictions, as Vas said. And as they go online, we'll be there to match the demand. And as for boluses, I think you mentioned, whilst there is a little bit of a bolus, I am sure we again are ready to treat whatever presents and supported by physician and payer.

Vasant Narasimhan - CEO of Novartis

A. And then I would note as well, as we get further along with AVXS, it's important to note that the intrathecal dose is significantly lower than the IV dose. And then supply considerations become much less central. Now with respect to Votrient®, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. With respect to Votrient®, we're actually where we expected to be at this time. I think it's important to note that the dynamics of what's happening in RCC, particularly in the first-line treatment with the approval of the I-O/I-O in May and as well as the impending data that's coming at ESMO around the I-O/TKI data. So I think it's fair to say that in the US and Europe, we expect to continue to see some declines, which is exactly what we projected. I think it's also important to note that we are seeing very strong growth in Latin America, Japan and emerging growth markets and recently received reimbursement in China. So we actually have some growth markets offsetting the decline that we are seeing in US and Europe. But it is showing strong growth in other markets.

Vasant Narasimhan - CEO of Novartis

A. And then lastly, with respect to Endocyte and the structure of the deal, Harry?

Harry Kirsch - CFO of Novartis

A. Thank you, Matthew. So there are no specific concerns here, just the structure that both parties agreed upon to do a one-step merger versus a tender offer. So nothing specifically to read into that.

Timothy Minton Anderson - Wolfe Research, LLC

Q. On Cosentyx®, second-biggest drug now, competitive area and we've got the J&J ECLIPSE trial close to report out fairly soon head-to-head versus your drug. Can you talk about how J&J as the sponsor of that trial may have optimized that trial to increase the odds that it hits and also your expectations on the odds that it will be a positive trial? If it does happen, what's going to be Novartis' talking points in defense of Cosentyx®? And are you going to say it won't have any real commercial impact on the product? And then the second question, just to clarify on formulary positioning for Cosentyx®, you guys kind of got beat up earlier in the year when you rebated, you changed the rebate structure in Cosentyx® to try to get out of the rebate trap on first-line psoriasis. Has that had success in moving you up into first-line access? And what do you expect on that particular front in terms of access restrictions in 2019?

Vasant Narasimhan - CEO of Novartis

A. Yes, I think for both of those, ECLIPSE and the formulary situation, to Paul. Paul?

Paul Hudson - CEO, Novartis Pharmaceuticals

A. So thank you for the question. When you sit down with dermatologists in the clinic, clear is clear. And this debate about my PASI is bigger than your PASI is a little bit less relevant. Now it matters to patient outcome. And of course, the study may read out, you would expect, a well-organized competitor to pick its moments to be able to make sure that they had some differentiation. Our confidence in not worrying too much about the outcome is because we think it will be mainly a campaign or marketing message. Maybe the larger the dataset may be able to tell us more about that medicine. More importantly, I think it's worth evaluating the ARROW study, the more mechanistic study, that we have in play. Because the real unanswered questions in dermatology are about the extra manifestations. I think in one of our backup slides, you can see under that, that we care greatly about advancing the understanding – Slide 33, accelerating the understanding and advancing the understanding for the dermatology community. And two thirds of these patients have other complications where predominantly IL-17A is the driver. So you have to recognize that the real news will be ARROW. Yes, there will be some marketing impact, I'm sure, of ECLIPSE, depending on how it reads out, but we're comfortable with that. As for the rebating – let's look back first at the last two years that we've said that we will be thoughtful about our rebates in Cosentyx® and that we'll trade access enough to grow volume faster than the additional rebate and run a successful business. I think we've proven clearly that we've done that and very pleased, by the way, with our Q3 performance. We don't dig deeper and share data on the first-line setting, but it's performed exactly as we hoped it would do. And it sets us up very nicely for '19. I said in an answer to a question earlier, I think from Graham, that we have got ourselves set up very nicely for '19. Whilst we haven't advertised what we've achieved, we're confident with the position and the strategies deployed in the last couple of years.

Richard Vosser - JP Morgan Chase & Co, Research Division

Q. Richard Vosser, JPMorgan. Just a question on the Endocyte deal, first of all. Just, first of all, can you give us some help in terms of the proportion of prostate cancer patients that express their PSMA protein on them? And also thinking about the initial indication that you're doing the Phase III trial, and it looks like it might be post taxane. So does that mean you have to fail Taxotere first? Just some thoughts on the positioning there. And perhaps you could give us an idea of whether the royalty payments still stand to AVX post the transaction and where those stand. And also on the manufacturing, you talked about that being important. Perhaps you could update us and think about the capacity that it brings along with that. And second area, just thinking about the CRL on generic Advair®, perhaps you could update us there. And final question on Alcon. You've helpfully given us a 2023 time frame for margins in Alcon to hit the low to mid-20s. But perhaps you could give us an idea of the pace of that improvement in margins.

Vasant Narasimhan - CEO of Novartis

A. Great. Thank you, Richard. So first question on just the overall landscape for prostate cancer PSMA, et cetera, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Yes, sure. There are about 70% to 80% of patients express PSMA. To answer your question directly, yes, in the trial that we have shown you, you do have to fail at least one taxane. It doesn't have to be Taxotere, but it has to be one taxane. And I think our goal is in the future to move it earlier into the treatment paradigm, so we will begin to think about that post close. And I don't think we're commenting as far as the royalty is concerned at this point. And then lastly, around the manufacturing, there's different types of manufacturing. There's direct and indirect. And the method that they have is really just giving us the capability of being able to generate less waste and have a more purified therapy. So we're looking at how we leverage that technology and that expertise over to AAA. And I think from that perspective, that sort of answers the question on what we think is the benefit of the manufacturing. They are currently using a CRO, so I think that our ability post close to look at the total manufacturing and see the best way forward, we'll look at that post close.

Vasant Narasimhan - CEO of Novartis

A. And it's certainly our aspiration to drive that synergy, given the capability we have within AAA to reach patients eventually all around the world through our supply chain. Next, the CRL on generic Advair®, Richard?

Richard Francis - CEO, Sandoz

A. Thanks for the question. So to reiterate what we said on the previous earnings call, we've had good discussions and communications with the FDA. We believe we understand what is necessary to get generic Advair® to the market. And we stick with the timeline as we communicated earlier, where we see this coming to the market at the back end of next year.

Vasant Narasimhan - CEO of Novartis

A. Great. And then with respect to the pace of Alcon margin improvement, David?

David Endicott - CEO, Alcon

A. Yes just to start with saying that 2017 is, obviously, the trough year, '18 will be up, '19 will be up on that. We haven't really commented on the pace, but we intend to have our Capital Markets Day in November and December. We'll have an opportunity to take you through the margin progression, how we see that. It obviously moves a great deal on our products like our AT IOLs, our manufacturing productivity and then leveraging our cost structure. So we feel good about where we're going long-term.

David Paul Evans - Kepler Cheuvreux, Research Division

Q. It's David Evans from Kepler Cheuvreux. Just on Lutathera®, the initial launch, as you pointed out, has been excellent. It's been faster than I think probably most people would have modeled. Could you just possibly give us a little bit more of a view on the shape of the launch? And how you expect that to look? Are there any kind of sticking points in terms of getting access to centers and training centers up? Or should we expect it as a typical fast linear pharma oncology launch in the US? And equally, Europe, I would imagine should be a lot slower. Is that fair?

Vasant Narasimhan - CEO of Novartis

A. So on Lutathera® launch, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Yes, sure. I think you said it appropriately. I think we are seeing what would you normally see it in a traditional pharma launch. And I think that we were very pleasantly pleased with that. We have over 85 centers in the United States, as Vas showed earlier. And we expect that to continue to – I would say you could look at it like you would a traditional model. And I think in Europe, you're correct, that we do expect a slower uptake at the centers. It is really important to note that it could take up to a year for a center to really understand and be prepared to offer this therapy. So I think the team is doing a phenomenal job. We're also just starting to see reimbursement in Europe. So while we do expect it to be slower than the US. So I think the majority of the revenue going forward over the next period will mainly be coming from the US, but we're really pleased with the uptake so far.

Vasant Narasimhan - CEO of Novartis

A. And also Liz's team's plan is to get this global over time as well.

Florent Cespedes - Société Générale Cross Asset Research

Q. Three quick ones. First, on Afinitor®, could you give us more color on why the product declined in Q3 versus the slight growth in H1? Is it due to the fact that we're approaching the end of its patent life? Second question on canakinumab, could you share with us a little bit more regarding the requirements from the FDA. Is there a new large outcome trial needed in cardio for the future of this product in cardio? Or could you provide the data, more information to the FDA based on the trials available so far? And last question, for Richard on Sandoz. Europe looks a bit soft this quarter after a 7% growth in H1. There is only 1% growth in Q3. Is there any reason behind that?

Vasant Narasimhan - CEO of Novartis

A. Thanks, Florent. Liz on Afinitor®.

Elizabeth Barrett - CEO, Novartis Oncology

A. Yes, Afinitor® is really driven by the CDK market and our breast cancer market, so that's what is driving that, the performance there. As you see in the United States since the CDK market has actually penetrated more. We saw a leveling off of Afinitor®. But now that you're seeing the increase of penetration of CDK in Europe and other markets and you're seeing a subsequent decline in Afinitor®. So we expect the same dynamic to likely happen as the CDK market begins to penetrate in earlier lines in those markets as well.

Vasant Narasimhan - CEO of Novartis

A. And then, John, with respect to the canakinumab CRL?

John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. Yes, regarding the canakinumab CRL, as we saw from the CANTOS trial, we knew that the patients who achieved hsCRP less than two received the most benefit. And as we continue, we had discussions, and we received the CRL yesterday. And we're continuing to explore additional information based on the information that we received from the FDA. And we'll have further understanding as we move forward.

Vasant Narasimhan - CEO of Novartis

A. Yes. So we'll provide updates on that as we go. And then Richard, on the EU generics?

Richard Francis - CEO, Sandoz

A. Yes, thanks for the question, Florent. So, yes, there was a softening of the performance in the European business and let me sort of outline what drove that. So firstly, it's worth noting that we did launch – our bio launches that we had in quarter 3 last year. So the prior year was a pretty big year for us with the launches of Erelzi® and Rixathon®. And then on the retail side, you're aware that we withdrew valsartan and so that had an impact on us as well as some seasonal buying patterns, which are constantly varying across quarters in some years. And so we felt the impact of that. So I remain confident about the European business as it performed well and going forward, obviously, we have a number of launches coming up in the near term. This week, we launched adalimumab into Europe in a number of markets, as Vas mentioned, as well as we're optimistic about for a (inaudible) European business pretty soon as well as infliximab. So I hope that answers your question, Florent.

Stephen Michael Scala - Cowen and Company, LLC, Research Division

Q. Several questions. Kymriah® in follicular lymphoma, the filing has been delayed. The company previously has said manufacturing issues would not delay filings. Is there a change in that? Secondly, Paul, you previously have said thousands of type 1 patients would want AVXS-101 upon launch, which implies multibillion dollars in revenue in 2019, fueled by, as you have said previously, time is neurons. The answer to Matthew's question was a bit more muted than that very positive portrayal in the past, and I'm wondering if you could amplify. And then lastly for Richard, biosimilar Humira® in the EU. What do you think the slope of adoption will be? For instance, can biosimilars get 25% molecule share in the first year or more?

Vasant Narasimhan - CEO of Novartis

A. So I think first on Kymriah®, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. No, in Kymriah® where we currently are manufacturing, we've just announced a slowdown on trials, but we have not noticed any ending of a trial or expecting that we would delay any trial because of the manufacturing. So I think that's the only thing we want to add at this point.

Vasant Narasimhan - CEO of Novartis

A. So I mean, our aspiration is to keep FL as well as the other B-cell induced cancers on track with respect to Kymriah®. Paul, on Type 1 SMA?

Paul Hudson - CEO, Novartis Pharmaceuticals

A. So, Steven, sorry, if I was somewhat muted, that wasn't my intention, I was trying to respond to the manufacturing question which I'm comfortable with. The SMA community is desperate for a gene therapy. We do believe it's going to be foundational across all SMA types. Our first indication will be in newborns, and we expect to have a significant demand for that patient population. And we will be ready to match that demand. I should have perhaps mentioned earlier about our North Carolina manufacturing site that we made a big investment in to triple our capacity. So we're preparing very well for whatever is there. And we do hope that there is a significant number of patients as much for the patients as for the business.

Vasant Narasimhan - CEO of Novartis

A. Thank you, Paul. And biosimilars Humira®, Richard?

Richard Francis - CEO, Sandoz

A. Yes, thanks for the question. So to answer your question about so what market share penetration there will be. I think it's an interesting question, and what I would say if you look at it historically, every biosimilar that comes to the market in Europe, I think changes the adoption and moves it upwards. And we saw that obviously last year with rituximab coming to the market, and you see that penetration levels there. And we've also got obviously a few competitors coming to the market with us. I think that drives me to be optimistic about the biosimilar penetration over the first year. I also stand with that, I won't get too specific about numbers, but I do feel the European market is ready for this and most definitely the health authorities need to be looking at opportunities to save money, so very positive.

Eric Le Berrigaud - Bryan Garnier & Co Ltd, Research Division

Q. Three questions, please. The first one related to margins in Pharma and Sandoz. And the way sales to other segments and other revenues are contributing to the margin increase in the quarter. Could you maybe at least for Innovative Medicines, while it contributed more than 100 basis points out of the 190, explain what is behind especially the sharp increase in other revenues and also if sales to other segments, if there's been any shift from Corporate into the various divisions? Because it looks like there is a double-digit increase where there is a significant decrease in Corporate. And second point on Lutathera®, perhaps, again, three questions. First to understand how is it used, and whether it's very late in lines, like second, third line. Mainly second, why it has no impact on Sandostatin®, as I guess it's a relief to Sandostatin®. And then maybe to remind us what your plans are to move it in earlier lines in the future. And third, on Sandoz Europe. Again, just to understand how the trajectory of the biosimilars could be in year two. Because we can understand that now rituximab, for instance, in Europe is getting into the second year. So how does it look like? Are you able to increase volume? Are you facing significant price decrease? Are you keeping your market share? Because we see the brand names still going down, but if it looks more flat for the biosimilar, then probably there is some explanation behind it.

Vasant Narasimhan - CEO of Novartis

A. First on other revenues, Harry?

Harry Kirsch - CFO of Novartis

A. Yes, so on the other revenues, as you mentioned, mainly driven by Innovative Medicines. This is basically a profit split and royalties behind Aimovig® and Xolair®. So from that standpoint kind of a margin and sales true-up from the profit split where we have marked in best efforts in the SG&A line and then some true-up and limited royalties on other revenues as well as Xolair® royalties from US profit split. So that's the main part driving the other revenues up. There's no change in the structure of how we maybe work with Corporate and respective divisions. We have seen – you may have seen this in the Corporate line, that vaccines IP-related royalties have come down significantly and therefore an increase in the Corporate costs line and core Corporate expenses.

Vasant Narasimhan - CEO of Novartis

A. Thank you, Harry. On Lutathera®, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Yes, sure. Lutathera® is indicated for second line in neuroendocrine tumors and that's where our growth is. And as traditionally seen and typically seen in this market, obviously some of the patients initially have been through even more than two lines. So we've seen the later line, but we do expect to become standard of care in second line. You haven't seen an impact on Sandostatin® because there's a couple of things happened with the dynamics of Lutathera®. One, you do have to come off of Sandostatin® temporarily, but the trials were done, followed by Sandostatin®. So once the Lutathera® treatment is complete, the patients go back on to kind of Sandostatin®. And I think that we believe that Sandostatin® will continue to be first line standard of care, but we are considering looking in and investigating Lutathera® in earlier lines of therapy.

Vasant Narasimhan - CEO of Novartis

A. And lastly, Sandoz biosimilars Europe, Richard?

Richard Francis - CEO, Sandoz

A. Yes, thank you for the question. So to answer your question is sort of a how we should think about the growth rate? So first, I'd like to sort of point that obviously for the quarter, we had a 21% growth rate in biosimilars. Now of that, the base business, which we sort of call the non-launch business in Europe, also performed very well. And we continue to see good uptake on both rituximab as well as etanercept. As we move forward, I still think there's good opportunity to continue to keep growing these products. Obviously, the biosimilar penetration hasn't maxed out, but at the same time, we do see some fighting back of the originator and that generally is in the form of prices. So that gives some variability. But we still see these as growth brands as we move into next year. So I hope that answers your question.

Michael Leuchten - UBS Investment Bank, Research Division

Q. Two questions, please. One on Aimovig®. For patients that are coming off the free drug program, I wondered if you had any data to show what happens to those as they are all converted on to commercial, is there any leakage, any color would be helpful, if not early days. And a question on Alcon. Given the CyPass® withdrawal, I was wondering how you measure the potential impact on Alcon Surgical given that the business has spent a lot of time rebuilding trust with the physician communities, social community. Is there any way you can quantify touch points? Any collateral damage for the business, if any.

Vasant Narasimhan - CEO of Novartis

A. Thank you, Michael. Paul, on Aimovig®.

Paul Hudson - CEO, Novartis Pharmaceuticals

A. So firstly, we're delighted with the uptake of Aimovig® in the US. And indeed it reads across very nicely to what we think will happen in Europe that is rolling reimbursement in Europe, the unprecedented demand bodes well for the choices made. We're not sharing data yet for the conversion. I think you'll appreciate clearly that our objective earlier on in the launch was to give physicians and patients the earliest opportunity to use the medicine unencumbered, find out if they're a responder and just how great a responder. And that's proven out to be exactly as we thought with the significant uptake. It's also worth mentioning as well because as we get through the end of the year and into next year and we start talking about – or our partner will start talking about the US dollar sales, that we are running both a hub, at the high touch with neurologists and the retail approach. So we feel that we'll be unique in offering both channels to get drug to patients. So we feel good about how we're going to convert and when we're going to convert, but I'm not going to share that data right now.

Vasant Narasimhan - CEO of Novartis

A. Thank you, Paul. And on CyPass® situation, David?

David Endicott - CEO, Alcon

A. Yes, on CyPass®, probably the best way to think about the impact is long-term relationship with the surgeons. I think we feel really good about what we did around how we handled this. It was done with a lot of scientific advice from folks we know well, but also in conjunction with the agencies. We've exposed all the data at ESCRS. We'll show it again at AAO. We made it available to people on our website. And obviously, we continue to work with the agencies around the world to do the next thing we can to see what we can do around the product, long term. The important part of this is the Surgical business grew 7% in the quarter. It also continues to benefit from a lot of our AT IOL push, which I think kind of is your best metric on how we're doing with the surgeons. I think surgeons appreciated our proactive and assertive response to the signals we saw.

Vasant Narasimhan - CEO of Novartis

A. Thank you, David. Thank you, Michael.

Kerry Ann Holford - Exane BNP Paribas, Research Division

Q. Just two questions left for me. Kymriah®, just interested to get your view on the sales ramp. So far, how has that delivered versus your internal expectations? Are you comfortable with the current consensus forecasts for over USD 200 million next year? And also, just to understand why you've taken on board a third-party manufacturing on this asset in China with Cellular Biomedicines Group? Is that to supply the local market only? And then on Gilenya®, just following the positive IPR ruling last July, just can you remind us of the next steps here in terms of time line?

Vasant Narasimhan - CEO of Novartis

A. Thanks, Kerry. Kymriah®, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Sure. Thanks for the questions. On Kymriah®, where we are today, to be honest with you, we're actually above our expectations given the manufacturing challenges that we've had. I think that's actually a response to physicians really being excited about the opportunity to bring Kymriah® to their patients. So it's hard to tell where we would be if we didn't have the challenges, but I think that what we've seen is that centers have continued to order Kymriah® despite this and because they really think it's important for their patients to get Kymriah®. So the good news is we've actually been able to deliver the therapy to most of the patients. So we're really pleased to be able to bring this therapy to patients. On China, as you say, it's because we do need to have manufacturing in China based on China law, and we also expect that they'll be able to assist us in gaining access to patient population in China. So I think what you've seen over the last few months is we've expanded our footprint for cell therapy manufacturing around the world. I think that shows that we're committed to providing access to this important medicine around the world.

Vasant Narasimhan - CEO of Novartis

A. Maybe I'll just add on Kymriah®. When you look longer term, and we really see this as a long-term play, and we are quite confident in the profile of the medicine, which is why we invested in resolving the manufacturing issue in the US. We announced a deal with Cell for Cure in France. We announced we'll be building a facility here in Switzerland. We announced the China facility to really give us the global supply chain that we need. And the reason we do that, as Liz points out, is Kymriah® has a pretty unique profile we're learning. It's a profile that hits the sweet spot between strong efficacy and solid safety, can be used in the outpatient setting. And when you think longer term about this evolution of this space, it's really going to be about moving to earlier lines of therapy, where the T cells are less exhausted and you can generate stronger responses. And you want a very safe profile medicine in order to be able to do that. So our aspiration with this is to get across B-cell induced cancers, get into earlier lines, have global manufacturing scale and be able then to really make this into a significant medicine for Novartis. Now with respect to the Gilenya® IPR, there's no new updates from what we've told, I think, you in the last quarter. We have filed the lawsuits against the relevant parties. We're waiting now the next steps with respect to the various court cases and what these various parties might do. As soon as we have any further updates, of course, we'll keep you all aware.

Q. Just a couple here. I don't know if anybody asked any questions on Aimovig® yet, but just interested to know a little bit of how we should be thinking about the evolution of gross to net and pricing in this area. Obviously, we're seeing some spectacular uptake of the product, but there's speculation and awareness that a lot of free drug is obviously entering the market because payers have not really supported yet. So just wondering how Aimovig® is going to evolve in terms of gross-to-net pricing in the US and how you feel, once that occurs, how the market is likely to shift in terms of the uptake. And then the second question is actually on QAW. I noticed that the first two trials that Novartis has reading out for QAW are on FEV1. The benefits that we've seen on FEV1 so far have been somewhat limited with the antibodies. Just trying to understand how your team has actually managed or is managing those trials for success, given what we've seen on the FEV1 endpoint in the high-eosinophil type area.

Vasant Narasimhan - CEO of Novartis

A. Thank you, Seamus. So on Aimovig®, Paul?

Paul Hudson - CEO, Novartis Pharmaceuticals

A. Yes, I think, clearly, I'm not going to comment on the gross to net. And in fact, just to be clear, Amgen take the lead on that decision ultimately in the US. I don't think we should get confused about free drug and trialing with what that means ultimately for gross to net. Again we were launching several months ahead of competition that were coming and taking fast. Again, we wanted to make sure patients got to try it. It wasn't about coverage or commercial insurance, it was about trial. And you'll have also seen, as recently as yesterday, an update from Express Scripts about the fact that we are already part of their plan. It wasn't just recently. It was from the beginning. So we know over time that the volume has to be converted to commercial patients. And we feel again very confident in how to do that, and we have the plans in place to do it. So I probably wouldn't have much to add. I think that's all for me.

Vasant Narasimhan - CEO of Novartis

A. And John, the QAW pivotals.

John Tsai - Head of Global Drug Development and Chief Medical Officer for Novartis

A. Yes, thanks for the question, Steven. Regarding what we saw in Phase II, as you know, fevipiprant, or QAWs, are the only DP2 antagonists to show improvement in FEV1, asthma control and reduction in sputum eosinophils, and we have our ongoing Phase IIIs, which are LUSTRE-1 and LUSTRE-2. We expect to see results in the second quarter of next year. And we have that currently powered at greater than 90%, 40% relative risk reduction in the rate of moderate to severe asthma exacerbations. So we're looking forward to seeing the results in the exacerbations for next year.

Vasant Narasimhan - CEO of Novartis

A. Just to be clear, where we try to position QAW is really ahead of the monoclonal antibodies. And we know we need to show exacerbation reductions that will enable that to happen, but our absolute aspiration is the struggle to demonstrate it can be used before biologics and also then be used in children where we also have a program to ensure that there's pediatric dosing available over time so that we can really cover the space of severe eosinophilic asthma.

Marietta Miemietz - Primavenue Advisory Services Limited

Q. Just a few points of clarification left really. One is following up on Kerry's question on Kymriah®. I mean how should we think long term about pay-aways to third parties? In terms of China, should we think of your partner as more of a glorified CMO or someone who gets meaningful royalties or something potentially even approaching a profit split? And as we look into the really long term and think about Kymriah® potentially being a mega blockbuster, what sort of royalty rate pay way should we assume for the various regions? Also, a couple of questions on the Endocyte deal, please. But first is in terms of the positioning, I understand that it's going to be much broader than the way your pharmaceutical is currently going into prostate cancer. But ultimately, in that bone met space, is my understanding correct that you would still be competing because you wouldn't be giving two radiopharmaceuticals, one treating just the bone mets and one treating effectively the bone mets plus something else? And then the second question on that is also, I mean given the somewhat checkered history of radiopharmaceuticals in prostate cancer, would you say that you don't expect any similar problems for your product because it's much more of Endocyte product because it's much more targeted? Or are there any particular learnings for your own clinical programs, in particular, any tumor settings or patient segments that you won't go after? And then just a small point of clarification on AVXS-101. So, Vas, you earlier commented that gene therapy is likely to be foundational. Were you saying that you expect orals to show lesser efficacy in the vast majority of patients and therefore the gene therapies should remain or should become standard of care for the foreseeable future? Or was that comment really just related to the pent-up demand on the bolus patients and you're effectively saying that you think if you look at the cumulative commercial opportunity longer term, most of that will have gone to the gene therapies before the orals actually hit the market?

Vasant Narasimhan - CEO of Novartis

A. So first, on Kymriah® global, Liz?

Elizabeth Barrett - CEO, Novartis Oncology

A. Yes, sure. I mean, I think the way that you should look at it is that we're committed, as Vas explained, to bringing this important therapy around the world. I don't think that there's any additional royalty or other things that we have to think about beyond what we already know. On the CVNG and partnership in China, I think we look at it very much as a partnership. They will be manufacturing for us, and they will also work with us to gain access there, but we're not expecting any type of profit share there. So I think that pretty much answers that question. It's really important, again as Vas said before, to understand that we're in the long game with cell therapy and particularly with Kymriah®. And we've seen and we feel the key stakeholders, physicians and patients, are excited about Kymriah®, and we actually continuously get requests from around the world to have access to this medicine. So it's important that we do it but we also do it in the right way. And we're planning to do that. Moving to the prostate and to Endocyte, I do think there's again a little bit of a misunderstanding. This therapy is for all patients to treat prostate cancer. I think that's the clearest way that I can explain it. It's not to treat a side effect or any other part of prostate cancer, it's to treat prostate cancer. And what's happening in prostate cancer, I think it's really important to think about the evolution of what's happened in prostate cancer. With antiandrogen therapies, particularly the novel antiandrogen therapies, are moving into the non-metastatic settings. So you're seeing the need for more therapies in the metastatic setting. And so we see that this will be an important medicine for all prostate patients with PSMA, which as I said – that I noted before, it's about 70% to 80% of the patient population. I think we demonstrated through the launch of Lutathera® that we can bring this important therapy to patients, and that physicians and centers and nuclear medicine physicians are interested in and excited about bringing these types of therapies to patients. So I think we feel very good about the prospects for the prostate cancer area. It's a large market, and these patients are in need of additional therapy.

Marietta Miemietz - Primavenue Advisory Services Limited

Q. Sorry, can I just clarify on that point because I thought that the vast majority of metastatic patients, the first metastases that develop or the main metastases are at the bone mets. So are you basically expecting to be as good on bone mets as other therapies, but have the broader application? Or would you see that separately?

Vasant Narasimhan - CEO of Novartis

A. Let me try one more time, Marietta. So when you think about radiopharmaceuticals as traditionally conceived, you're infusing a radioactive compound, systemically IV, and those radioactive compounds have certain affinities. So radium has affinity in places where there is calcium. So a radium builds up in the bone. But you have systemic side effects. And you don't have a very targeted approach to all of where you find the relevant cancer because this is really infusing a radioactive agent. Radioligand therapy, which is what we do with Advanced Accelerator Applications and what we do here with Endocyte, links a scientifically well-understood ligand that's specific to a specific cancer that links to a radioactive particle through conjugation chemistry. In the case of prostate cancer, there is a well-understood antigen called prostate-specific membrane antigen, PSMA, which is used as a diagnostic and ultimately used for treating the cancer. So what our aspiration is, based on all the science that we understand, is that these PSMAs are overexpressed on prostate cancer cells. So wherever you find prostate cancer in the body, you will be able to treat with radioligand therapy as that conceived by Endocyte. So our expectation is we will be able to work well in bone mets, but more importantly, we will work well for anywhere in the body that you find prostate cancer. And then we hope to create overall survival benefits and progression-free survival benefits in the indication of prostate cancer.

And then on AVXS-101 as a foundational therapy, really what we believe, and we have to ultimately generate the data to show this in SMA2, 3. But on SMA 1, we've clearly shown this is the foundational therapy, potentially lifelong, clear and compelling efficacy, remarkable efficacy. And so far, what we've seen over the patients beyond four years consistent effect. Now in SMA 2, 3, we have the studies running. Mechanistically, we believe correcting the SMN-1 gene fundamentally is want you want to do here. And that's what we're trying to do with this and that should enable the speed of action and the hopeful clinical benefit that you want to see in SMA Type 2, 3. Now we need to show that, but then we believe gene therapy would become foundational in those patients as well. I mean, we always have to remind ourselves here that this is an absolutely terrible disease. You meet patients who have this disease, if you meet their patients, this is an absolutely devastating condition. So having benefits that are quick, saving what motor neurons are available still in the body, enabling function has a huge, huge impact. So when we look at this from a distance and start to say, "well, these things look all very similar." Actually, these differences matter massively to the patients involved. And so I think that's what we believe will ultimately carry the day, with respect to one-time gene therapy for these patients.

Keyur Parekh - Goldman Sachs Group Inc., Research Division

Q. I have two questions, please. The first one, Paul or Vas, how would you categorize the recent pricing comments from J&J on kind of the inflammation market? And secondly, just more broadly on the pricing theme. Can you talk a bit about what are you seeing as it relates to kind of the IL-17 biomarket and kind of then on the migraine side, where obviously we saw headlines from Express yesterday choosing to leave off certain products of that category. Just calling you to describe for us what you're seeing in that market. And then secondly, as I look at your early-stage clinical trials, it seems like you've got a bunch of assets now forward looking at NASH. How would you categorize your interest in that space? And then conversely, what's quite unique is not a lot of I/O assets on your early-stage clinical trial. Is that now a deprioritized area from your perspective? Or are they just kind of further along?

Vasant Narasimhan - CEO of Novartis

A. So with respect to pricing in IL-17 and CGRP, Paul, any comments you'd want to make?

Paul Hudson - CEO, Novartis Pharmaceuticals

A. I'm not aware of any comments that have been made externally. I think just a couple of observations. We work very hard at affordability and to make sure that those that need the medicine get the medicine. I think that's where our priority is, and I think we have been showing to be skillful in our work with payers and PBMs alike. So I'd perhaps have nothing more to add than that.

Vasant Narasimhan - CEO of Novartis

A. Yes, on NASH, we have a lead compound called LJN452 tropifexor which is a FXR agonist synthetic, which we believe has a best-in-class profile. We have completed two steps of the Phase IIb studies. We're now in a final dose escalation. We believe because of the profile of the product, we can avoid pruritus, we can avoid LDL elevations and get the effective dose much higher than other established therapies. Given that we have that product, we've announced collaborations with a few external parties on combinations as well as our own deal for emricasan from Conatus where you have a combination trial ongoing as well as rights to some of their compounds. We also have an alliance with Allergan to do a combination trial there. Our belief is in having that lynchpin molecule –having the FXR will enable us to hopefully combine with multiple other agents. We play a long game here. We know there's many other companies in Phase III. We think understanding the underlying biology and then having the real best-in-class agent is the way forward in NASH, so stay tuned as we get more results. With respect to I/O, I wouldn't say there's a change in strategy. What I'd say is, we, in observing the external environment have held I/Os or I/Os is to a very high standard. And we want to ensure that we see either single-agent activity or a situation where we're confident that the activity we see can be attributed to our I/O compound. I would note with, canakinumab, we have a pretty large Phase III I/O program that is validated based on studies and analysis of a 10,000-patient study published in The New England Journal of Medicine, where we're in adjuvant lung cancer first line and second line lung cancer. We of course, are also in CART-T cell therapies. We continue our work across the full range of I/O assets that we brought in. I think by last count, we have either tied or leading number of I/O assets that are in the early-stage clinic. But from my perspective, we want to hold them to a high bar. We want to really ensure we see single-agent activity. And then in combination, really be sure that the additional agent is giving a benefit so that we're really creating value for patients and for the health care system.

So I think that's the last question. I appreciate everyone joining the call, and of course, appreciate your interest. And all of you who invest in our company, we appreciate your support. So thank you again, and have a great day.

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